All companies with government defense contracts may be subject to DCAA (Defense Contracting Audit Agency) floor check audits during a contract period. DCAA can surprise you with the floor check audit anytime without prior notice.
In February, DCAA released their latest audit guidance related to floor check audits for both major and non-major contractors. It’s important to become familiar with this guidance to ensure that you have all controls in place before auditors show up unannounced. Answers to these common questions may help:
What are DCAA floor checks?
Floor check audits are designed to test contractor compliance with the contractor’s timekeeping policy, controls on labor charges and to check employee time records for integrity and accuracy. Companies should have well-documented policies and procedures for timekeeping. Auditors will want to validate that employees are “actually at work” and ensure that employees are charging time on a daily basis, not once a week or a month.
Why do floor checks occur?
Where there is a perceived risk that labor cost may not be recorded or accumulated correctly, DCAA may perform floor checks, labor interviews or both. They may also be a result of prior experiences with your company.
What is a labor interview?
Some of your employees will likely be selected for a labor interview to verify that employee’s timekeeping practices are in compliance with your company’s internal controls and in accordance with the DCAA timekeeping procedures.
If a selected employee is not available for the interview, you should try to track that employee either by phone or email to prove that such employee exists. If the employee works from home, auditors might attempt to contact the employee by telephone and interview the employee’s designated supervisor to obtain evidence of the employee’s work and the supervisory control over that employee. Usually, email communication is the preferred means for this.
What kind of questions will an auditor ask in a labor interview?
Examples of common questions:
- Is the employee trained on the company’s timekeeping policy and system?
- Was the employee provided with the nature and scope of work to be done?
- Did the employee receive written directions on labor charging and time allocation across different contracts and tasks?
These are intended to ascertain that the employee is fully aware of the timekeeping procedures and performing the work as specified in the contract. Auditors might request copies of written documentation notifying the employee of the assigned job number, its description and how to allocate hours across different tasks. It helps to keep any emails or other forms of written communications about work authorization saved and printed out, which is why it is considered a best practice to have any and all timekeeping instructions given to an employee in writing. Auditors might also want to see your payroll records to compare it to the labor distribution costs to determine if any discrepancies exist.
What happens if an employee can’t fill out a timesheet?
There may be any number of reasons that your timekeeping system is temporarily unavailable, such as the electricity going out or a server malfunction. As a contractor, however, you still have an obligation to keep appropriate records. Be sure to keep manually written records of time worked and then copy them to the electronic timekeeping system when the system is up and running again.
What if the employee is out due to illness or other personal circumstances?
In general, supervisors should refrain from initiating time records on behalf of the employee. However, DCAA allows the supervisor to initiate a timesheet for the employee who is absent for a prolonged period of time on authorized leave or travel. Upon return, the employee should certify the timesheet completed by the supervisor and turn in his/her own timesheet.
Do employees need to know how to correct a timesheet?
Questions about the procedures for correcting a timesheet might arise during the floor check. You should have procedures in place that identify the original time records, the corrected time records and documentation on employee’s authorization for changes.
When correcting time in an electronic timekeeping system, do not delete records. Remember that every correction should be documented. In lieu of deleting records, the employee may simply offset original records with negative values and record hours to the correct job number, documenting the reason for corrections. All changes should be justifiable, verifiable, properly initiated and approved by the designated supervisor.
What happens if you fail the DCAA floor check audit?
If your company does not pass the audit, its reputation and competitiveness within the government contracting community could be in jeopardy. Losing future opportunities for government contracts and having the start date of your current contract delayed are just a couple of the many implications that could negatively affect your business performance.
If you had a floor check audit in the past that resulted in auditors recommending corrective actions, be sure to take those corrective actions right away. The chance that they will come back to follow up with you is very high.
For more information on how to prepare for a floor check or manage an audit in progress, please contact your Aronson government contracting advisor at 301.231.6200.